ANNUITIES, BORROWING UPON, a mode of raising money, occasionally resorted to by governments, for the purpose of raising supplies.
Money may be either raised on a perpetual annuity, or on an annuity for a term of years. When it is raised by a perpetual annuity, it will return to the borrower the common rate of interest, the security being supposed unexceptionable. Where it is lent on an annuity for a term of years, the rate of interest will be proportioned to the term which the annuity has to run. Money may be lent on annuities for a fixed, or for an uncertain term of years, as in the case of annuities on lives. In estimating the value of annuities on lives, either on a single life, or on the joint lives of a number of individuals, it is neces sary to ascertain the probable duration of the lives dur ing which the annuity must be paid, after which, its value must be calculated on the same principle as the value of any other annuity for a fixed term. To borrow a sum of money on an annuity for a fixed term of years, is, in reality, to borrow money, and to establish, at the same time, a sinking fund for the reduction of the debt. The two transactions are substantially the same, since whatever is paid above the common rate of interest, in consideration of the shortness of the term, would, if it were left to accumulate in the hands of the borrower, be equally effectual tor the liquidation of the debt within a similar period ; and it is upon this principle, indeed, that the value of every annuity must be determined. It must be sufficient, not only to defray the common rate of in terest, but it must also yield a surplus, which, at its ex piration, will have accumulated into a sum equal to its original price. On this account, an annuity for ninety eight or ninety-nine years, is really worth nearly as much as a perpetuity, and should, therefore, it might be ima gined, be a fund for borrowing as much. Those, how ever, who buy into the public funds to make family set tlements, and thus to provide for futurity, would not wish to fix their property in a stock, of which the value was perpetually diminishing. An annuity for a long term of years, therefore, though its intrinsic value, or rather its arithmetical value, be nearly the same with that of a perpetual annuity, will not find nearly the same number of subscribers. The subscribers to a new loan, who
mean generally to sell their subscription as soon as pos sible, prefer greatly a perpetual annuity redeemable by parliament, to an irredeemable annuity for a long term of years, of only equal amount, the value of the former being supposed always the same, and making, on that account, a more convenient transferable stock than the latter.
Annuities for lives have occasionally been granted, either upon separate lives, or upon joint lives, in French, called Tontines, from the name of their inventor. When annuities are granted upon separate lives, the death of every annuitant frees the public revenue from the bur den of his annuity. When annuities are granted upon tontines, the liberation of the public revenue does not commence till after the death of all the annuitants com prehended in the same scheme ; the last survivor suc ceeding, of course, to the whole. Upon the same re venue, more money can always be raised by tontines than by annuities for separate lives, an annuity, with a right of survivorship, being really worth more than an equal annuity for a separate life; and, from the natural confidence of every man in his own good fortune, such an annuity generally selling for something more than it is worth. In countries where it is usuril for govern ment to raise money by granting annuities, tontines are upon this account generally preferred to annuities for separate lives.
From the preceding statement, the reader will per ceive, that a state which raises its supplies either by annuities for a fixed term of years, or by establishing a sinking fund for the redemption of its debt, pursues a policy substantially the same; a sum borrowed on an annuity for a limited time, being in reality the same transaction, a little varied in its form, with the establish ment of a sinking fund for its redemption. Both these methods have been occasionally resorted to by Britain, for the purpose of checking the increase of her debts, although it must be admitted, that, until a very late pe riod, our ancestors seem to have been well disposed to hand, down, along with other rights and privileges, a large load of debt, for the comfort of their posterity.